Tag Archive: rules

The 15% Rule Has No Place In Today’s Digital World

Read “Where The Suckers Moon.” Seriously. Before you continue with this post, go to Amazon, add it your cart and check out. Get the Kindle version and the softcover version. Why? Simple; it’s the greatest book ever written about the advertising industry. That’s broad. For the purposes of this post, Randall Rothenberg in a few hundred pages, gives all the background you could ever want or need, to help understand why the 15% model was created and why it’s been so challenging to move off of that outdated model.

In the earliest days of advertising, an agency took a straight commission off of placing and buying media. That commission eventually settled around 15%. There were companies still using this model 10 years ago. Old habits die hard. That 15% commission became a defacto standard for how much an agency should be compensated relative to the media spend. If you spend $10M in media, you shouldn’t spend more than $1.5M to produce the creative needed to satisfy that media buy. Depending on who you talk to or what association you belong to, that 15% is as low as 10% for some categories or as high as 20% in others. But, the general average is STILL 15%.

The model was simple. It was clean. It enabled planning to be easier and faster, because everyone knew the compensation model. It was also a model that was born when we were only planning against a limited number of communication channels: TV (3 channels at most), print, radio and outdoor.

The model worked well for legacy media channels, because the distribution was expensive, but production was relatively cheap. Let’s take a real world example: the cost to create a commercial is roughly 600K. The media cost for a 30-second Super Bowl spot is roughly $4M. This places the ratio of agency spend to create the ad, right at 15%, which is right in line with historical averages used for the last 50 years. It’s also quite consistent with reports from major industry associations and reports.

Today, where we have such high media fragmentation this model falls apart. Marketing in a digital world, requires a completely different set of models and requires us to rethink how we’re spending our money. With digital, distribution is relatively cheap. It’s the creative that’s expensive. Those who understand and embrace this have settled between 30% and 40% for the dollars needed to support a digital driven campaign. It makes sense. The rough cost to create the famous Oreo Super Bowl tweet was $2,000. That figure is based on the 15 minutes it took to create and publish the image, multiplied by the list of people who were attached to the Cannes submission for the ad, multiplied by a simple conservative blended rate of $200/hour.

Before we continue, let me clear, I’m not suggesting that Oreo actually paid 360i $2,000 for that tweet. I’m sure the cost to create that tweet, from an already once used image, was accounted for as part of a broader client/agency fee agreement. The $2,000 is a real number however. It’s the real dollars needed to create that tweet as a one-off piece of creative…just like the $600K is the relative cost to create a one-off Super Bowl commercial.

With that said, think about that…$2,000 for 1 tweet. What if you need 8 great tweets a day, every day for a year? Well then you’d be spending $4.38M in just twitter creative. Even with a volume discount of 50%, you’re talking $2.19M per year. AND, that’s just twitter? We know the digital patch quilt world we operate in is much larger than just twitter. We need creative and content for Facebook, Pinterest, your emails, Instagram, your website, Tumblr and so on.

But, for the sake of simplification, let’s just focus on twitter. And more specifically, let’s just focus on a 1 day twitter campaign. The most recent publicly documented cost for a promoted trend is $200K. A promoted trend can generate upwards of 90M impressions as seen my Coca-Cola, more is more generally in the 30M impression range. Let’s split the difference at 50M impressions for an average trend campaign.

Creative wear-out is a reality. If you show someone the same ad enough times they either take action or start tuning it out. With digital display, the rule of thumb is you need 1 creative unit per every 1.5M – 3M impressions. The variance is tied directly to the reach/frequency model you need for your category (eg auto vs. CPG). Twitter, of course, isn’t display. We check twitter several times a day. If anything you’d need more messages/creative units because the wear out would happen faster. That said, since there’s no publicly available data to substantiate that, we’ll roll with the following campaign specifics:

  • 1 Promoted Trend Campaign
  • $200,000 for the cost of the trend campaign
  • The campaign would yield 50M impressions with creative wear-out happening at 1.5M impressions
  • The cost to create an award winning tweet is $2,000

So with the above, we would need 33 creative units/messages at a cost of $2,000 per piece of creative for a total cost of $66,000. At that cost and the cost of the promoted trend, we’ve clearly exceeded the 15% “rule.” We’re at 33% (I did the math for you). If we get our bulk discount of 50%, we’re at 16.5%. Based on my experience, when you consider the cost of the account coordinator to open the job # to the Chief Creative Officer to sign off on the job, the cost is going to be more than $750.

Keep in mind, our example is limited to twitter. We haven’t even started looking at the costs to then produce creative unique to Facebook, Instagram, Pinterest and other large social platforms, across the very fragmented digital landscape.

Screens are getting smaller and more varied.  The number of “media” channels consumers are flocking to is exponentially increasing. Consider that Vine, Jelly, SnapChat, Medium and so many others didn’t even exist a year ago. We’re adding more and more places to visit every day…yet the time we’re spending at those places is becoming more and more fleeting. To me, this means we, as marketers, get even less time to make an impact with our consumers. And that’s why you need award winning level creative every single time. You can’t deliver C-level creative experiences. They all need to be A-level. Creating A-level creative, means making your creative unique to each publisher, placement, consumer segment and person.

For years, traditional marketers have taken issue with a “shotgun” approach to marketing. The argument is that it’s too broad and not focused. Some I’ve worked with, favor a “champagne pyramid” approach to marketing, where you fill up the top glass (usually TV) and only delve into another marketing channel, after the first glass is full. This trickle down approach to marketing spend simply isn’t consistent with today’s digital world; it’s antiquated, but easy to manage.

Is it any wonder that people who cling to a champagne pyramid approach to marketing, still cling to the 15% rule; something created over 50 years ago?

I can’t tell you if the right percentage is 20%, 30%, 50%. But, I can tell you the 15% rule has no place in today’s digital world.

Now, go buy Where The Suckers Moon…now!

Missing The Forrest

Minnesota is a cold state. There’s simply no two ways about it. Minnesota is also a state that caters to cold weather sports like hockey. Unfortunately, super cold weather and sports aren’t a great combination. It’s one of the reasons Minnesota has so many skating rinks. You can enjoy ice skating without dealing with 5 degree weather.

Just after Christmas I picked up ice skates for myself and the kids. I’ve been trying to teach them how to skate. John swears he’s going to play hockey when he’s older. Now, with Minnesota being a hockey state, it’s tough to find rink time for free skating. Usually rink time is reserved for hockey games and hockey practice. One place that is dedicated to free skating is The Depot It’s pricey at $8 for adults, $6 for kids of ALL ages and $4 for parking. The Depot is connected to the Renaissance Hotel and an underground parking lot. By connected, I mean you can literally access the rink without ever having to step outside. Smart, right? I mean, if you’re a hotel guest, you’ll never have to step out into the nearly 0 temperatures of a Minnesota winter.

The Depot

Well, imagine my surprise when yesterday, we found the door connecting the warm hotel to the rink, closed. Not just closed, locked. We and several other families were perplexed. A Depot employee came out to inform the group that the doors were locked and we would all need to go outside and use the alternate entrance. More than a few families were miffed. Given the lack of warm winter clothes I guessed many of them were hotel guests; we weren’t obviously. We stepped outside, braved the old (8 degrees today) and used the alternate entrance.

I asked the woman collecting the entrance fees what the deal was with the locked doors. She was exasperated and very clearly stated:

1. It wasn’t her call
2. She thinks it’s “silly”
3. Management decided to enact the new policy to minimize the chance of someone sneaking in and skating for free

The employee and I both agreed that the likelihood someone would sneak in was minimal. Not only would you need to sneak in, but even if you did, you’d stick out pretty bad since all skaters receive a wristband after paying. She encouraged me to voice my complaint to “management” and encourage others to do so, as well. I couldn’t find management.

Think about this situation. For the 1 or 2 people a day who might sneak in (a $16 loss in revenue) The Depot grossly inconveniences 100s of paying customers. If more than 2 people, because of the new policy, choose to go elsewhere, The Depot loses more revenue than they would have had they not enacted the policy.

This is a great example of seeing the tree, but completely missing the forest. In the scope of the big picture this makes no sense. In the scope of the “problem” it makes lots of sense. As we think about the challenges we face every day in our companies and our personally lives, we need to remember to see both the trees and the forest.

Playing The Game

If you must play, decide on three things at the start: the rules of the game, the stakes, and the quitting time.

I was reading this article on Fast Company the other day about when you should leave a job or a project.  Since I originally read it, I’ve revisited it a few times. Beyond the business advice, which I think is solid, you can apply the thinking to the dynamics of personal relationships.

Make no mistake, we all play a game every day. We play it with the friends we keep, the family we’re stuck with and the job we’ve chosen. Many of us, including me, play this game pretty poorly. There’s no shame in that fact. Often we’re all playing a different game, at a different pace and of couse a different skill level. The chinese proverb that opened this post really nails why we all play so poorly:

If you must play, decide on three things at the start: the rules of the game, the stakes, and the quitting time.

Let’s break the 3 elements down:

  1. The Rules Of The Game: This is the foundation and it’s often very overlooked.  From the rules of engagement, to how you communicate, to what’s in-bounds, to even how you WIN, we forget the rules.  But, the rules are critical.  Without them we’re all playing a different game.  If this was pickup basketball, do 3 pointers count as 3 points or 2?  Are 2 pointers worth 2 points or 1?  Do you call your own fouls?  Are you playing till 21, 15 or 11?  In a relationship are you supposed to call before you go to bed?  Do the cooking?  Clean?  Say I love you after 7 dates :)?  If you don’t have the rules established, you’ll never be playing a game you can win.
  2. The Stakes: What are you playing for?  Bragging rights?  A promotion?  A raise?  Pride?  Determining the stakes helps you figure out how much to invest until you get to quitting time.  But, just like you need to make sure everyone knows the rules, you have to make sure everyone knows the stakes.  Because, if you’re playing for a raise, and your other half/team/boss/client is playing for bragging rights you’re going to have a problem.  If one of you is playing for marriage and the other for a casual long term relationship, that’s going to be a big challenge.
  3. The Quitting Time: This is all about the line in the sand and/or the deal-breakers.  What’s the point where you say, you know what, this isn’t worth it.  What’s the one thing that’s your breaking point?  Do you have a certain title you want?  Do you have an arbitrary amount of time in mind before you move in, get engaged, etc?  Well, you better hope that you and the other “party” are on the same page.  You just need to know what those deal breakers are and you need to stick to them.  If you don’t, you’ll be miserabel.

What do you think? What would you add to the proverb or change? How would you apply it to personal relationships…which let’s be honest are things we deal with every day, even at the office?

Blurry Lines

I’ve always been a very sociable person. The agency business is a very sociable industry. I remember as a young pup, working at Fallon, being wowed that people at the office dated, people ended up getting married and working on the same account, people were roommates and the idea of getting together after work for drinks was common place. Yes, there were even some “inappropriate” comments and jokes made after several beers. Colleagues attended each others events, rooted for each other, and genuinely took pleasure in connecting with each other outside of work. There’s was a sense of comradery and a general comfort level with a blurring of the lines. We worked hard and played hard.

Unfortunately, in today’s hyper cover your ass and politically correct world the lines between colleague and friend have become a problem. Have drinks too often with the same person and all of a sudden you’re dating them…and people start talking about you. Go to too nice of a restaurant with a co-worker and you might get scolded because it might be sending the wrong message. It’s a bummer. We’ve evolved from interacting with one another like humans to having to interact with each other like robots.

Recently, it was suggested to me that I de-friend, on facebook, all the people I work with. At first I scoffed at the idea. But, then a few events at the office caused me to change my mind. It’s an unfortunate situation. There are people I work with, that I manage, who I genuinely enjoy spending time with…that I enjoy grabbing a beer with or watching a ball game with. But, now I’ve had to re-evaluate how I’d handle those situations when they arise. It’s a change and an adjustment that I wish I didn’t have to make. But, changing times, a new generation entering the workforce and a focus on mitigating risk have made it a reality.

I’d love to know how you’re handling this new reality, because I’m struggling with how to evolve as the industry is evolving.

About
Digital dad to Cora and John. Love ironing, bourbon and BBQ; no necessarily in that order. Living life, like I stole it. I'm always up for a

spirited conversation. These are my thoughts and ramblings, not those of my employer.
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